What does GDP fail to account for when measuring economic progress?

When measuring economic progress, GDP (Gross Domestic Product) has inherent limitations that extend beyond just numerical calculations. While GDP is a vital indicator of economic activity, it does not capture the full breadth of a nation's economic health or the well-being of its citizens.

One significant aspect that GDP omits is the value of household production, which includes unpaid work such as childcare, eldercare, and household maintenance. This type of labor contributes to the overall economy but is not reflected in GDP figures since it does not involve market transactions.

Additionally, GDP fails to account for the underground economy, which includes all informal economic activities not captured through official reporting mechanisms, such as cash transactions, unreported income, or informal work. This can be significant in many regions and can affect the true scale of economic activity.

Moreover, GDP focuses solely on market transactions and does not consider factors like income distribution, environmental degradation, leisure time, or overall quality of life, which are also critical components of economic progress and societal well-being.

Understanding these limitations provides a more comprehensive view of economic progress, emphasizing that GDP is just one piece of a larger puzzle regarding a nation's economic health and the quality of life of its individuals.